Vision International People Group Public Limited
Annual Report 2006
Vision International People Group Public Limited
ANNUAL REPORT 2006
Contents Page
Introductory pages
Officers and Professional Advisors 2
Group Profile 3
Financial Highlights 6
Chairman’s Statement 7
Report of the Chief Financial Officer 10
Corporate Governance 14
Declaration by the Directors in respect of the consolidated financial statements 23
Directors’ Report 24
Consolidated Financial Statements 27
Other information
Notice of Annual General Meeting 80
Agenda of Annual General Meeting 81
Instrument of Proxy for Annual General Meeting 82
OFFICERS AND PROFESSIONAL ADVISORS
Executive Directors
Dmitry Buriak - Chairman
Roberto Piona - Chief Executive Officer
Non-Executive Directors
John Ioannides - Independent Director & Deputy Chairman
Michael G. Colocassides - Independent Director
Pavel Dubrov
Vahagn Manukyan
Company Secretary
Nairy Der Arakelian-Merheje
Registered office
Vision Tower
67 Limassol Avenue
2121 Aglantzia, Nicosia, Cyprus
Solicitors
Nairy Der Arakelian-Merheje Law Office
Group Internal Legal Advisor
Ismini A. Papacosta
Principal Bankers
HSBC
BNP Paribas (Cyprus) Limited
Bank of Cyprus
Marfin Popular Bank
Raiffeisen Bank
Parex Bank
Extrobank
Paritate Banka
Auditors
Ernst & Young
Chartered Accountants
36, Byron Avenue
P.O. Box 21656
Nicosia 1511, Cyprus
GROUP PROFILE
Vision International People Group Public Limited (the “Company”) was incorporated in Cyprus on 26 September 1997, as a limited liability company with registration number HE 89214. The Company was incorporated under the name of Transvol Limited. By a special resolution of the shareholders on 1 February 2003, the Company changed its name to Vision International People Group Limited. On 22 August 2003, the Company became public under the Companies Law Cap. 113 and its name changed to Vision International People Group Public Limited. On 27 February 2004, the Company obtained preliminary approval from the Cyprus Authorities for the introduction of its issued share capital comprising of 75.000.000 ordinary shares pursuant to the Securities and Cyprus Stock Exchange Law and Regulations. On 21 June 2004, the trading of the 75.000.000 shares of US$0,10 each of the Company commenced on the Cyprus Stock Exchange. On 1 December 2004, the Company’s shares were classified in the Main Market of the Cyprus Stock Exchange.
Vision International People Group Public Limited is the holding Company of the Group which comprises Sambrook Holdings Limited (100%), Nutri Export Limited Partnership (99%), Vision Holdings Limited (100%), Vision Balkan Limited (100%), Bohemia Vision s.r.o. (100%),Vision-Latomas Commercial Limited (100%), Vision Polska S.p. zo.o. (100%), Vision International People Italia S.R.L. (100%), Vision Istanbul Health and Products and Industry Limited (100%), Nutriprodex Limited (100%), Total Eclipse International Limited (100%), Vision Ukraine LLC (100%), Vision Kyiv LLC (100%), Vision Lviv LLC (100%), Vision Odessa LLC (100%), Vision Kharkov LLC (100%), Vision Romania SRL (100%), Vision Serbo d.o.o. (100%), Vision Middle Asia LLC (100%), ArmeniaVision LLC (100%), Vision Vietnam Co Limited (100%), Todini Limited (100%), Vision International Kish Private Joint Stock Company (100%), Vision Euronord Private Limited Company (100%), Vision Eurotrade Private Limited Company (100%), Vision Asia LLP (100%), VIP Asia LLP (100%), Vision Pavlodar LLP (100%), Vision RTK LLC (100%), Vision Kurgan LLC (100%), Vision Enisey LLC (100%), Opt RTK LLC (100%), Vision Volga LLC (100%), Vision Baikal LLC (100%), Vision Krasnodar LLC (100%), Vision Khabarovsk LLC (100%), Vision Kazan LLC (100%), Vision Ufa LLC (100%), Vision Persia Joint Stock Company (100%), Vision Dnepropetrovsk LLC (100%) and Vision Deutschland GmbH (100%).
Operations
The main activity of the Group, is the distribution of a wide range of health care products incorporating biologically active food supplements and cosmetics based on natural components complementing the Group’s “Whole Health Option” philosophy. For the distribution of the products, the Group has since 1996 successfully established 38 Vision Customer Centres through its franchisees and subsidiaries in 18 countries mainly in Russia, the CIS, the Baltics, Asia and Europe. The Group has 6 signed franchisee agreements, operates 31 subsidiaries for the retail sale of its products through the Vision Customer Centres, 3 logistics and warehousing companies and a representative office in Moscow.
The Group has a ten-year operating history, and for the year ended 31 December 2006 had net sales of US$100,3m (2005: US$80,6m) and net profit attributable to equity holders of the parent company of US$11,8m (2005: US$8,2m).
Products
The Group markets more than 45 different quality proprietary products, in three core product lines:
· Vision biologically active food supplements;
· Cosmetic line Millennium Alliance;
· Tri-Active and Quadractive Bracelets.
GROUP PROFILE (continued)
Products (continued)
The Group’s diverse product portfolio focuses on delivering a complete wellness program and way of life to its customers. The Group’s product range consists primarily of consumable products that are designed to target the growing consumer interest in natural health alternatives for nutrition and personal care. In developing its product line, the Group has given emphasis to quality, purity, potency, and safety.
The biologically active food supplements are exclusively purchased from the Arkopharma Group of Companies. More specifically, the biologically active food supplements are produced by Nutripharma Limited in which the Company maintains a 35% equity interest through its 100% shareholding in Todini Limited.
All products distributed by the Group, have received the necessary approvals by the relevant Authorities in each jurisdiction the Group sells its products.
Distribution
The Group’s products are marketed exclusively through a network marketing system, i.e. a network of independent distributors. Direct selling or network marketing is the promotion of products directly to consumers, in a person-to person manner, generally in consumers’ houses, at consumers’ workplace and other places away from permanent retail locations, through explanation or demonstration of the products by a direct seller (distributor).
Under the distribution strategy, the Group sells its products exclusively to its franchisees/subsidiaries who in turn sell these products exclusively to the Group’s distributors. The distributors are independent contractors and not employees of the Group. Each distributor has a signed contract with Vision Holdings Limited (100% subsidiary of Vision International People Group Public Limited). The distribution strategy creates a multi-level direct selling structure under which individuals are independent (buy/sell) dealers who may:
· purchase the Group’s products at a rebated price for resale or own use or consumption,
· resell them to consumers, and
· recruit other independent dealers who in turn may recruit additional independent dealers.
The distributors receive a direct retail profit upon their own sales of such products (if sold at the recommended established price) and receive commission upon the purchases of independent dealers in their direct recruiting downline to the extent defined by the Company’s Marketing Plan.
Management
The Board of Vision International People Group Public Limited consists of 6 members. It is responsible for the overall strategy and is vested with the powers of overseeing the operations of the Group. For the most efficient execution of its duties it has set up various committees. Moreover, the Group has a number of experienced staff who are responsible for key operational activities. The Group is also supported by contracted advisors – including distributors’ related services, clinical researchers and regulatory affairs advisors.
GROUP PROFILE (continued)
Dividend Policy
The Board of Directors has adopted a stable policy of declaring dividends of at least 75% of the Company’s profits available for distribution, subject to taking into account current conditions, the results of the Company and the Company’s capital requirements for expansion of its activities.
The final dividend of US$0,082 per share (US$6,15m) proposed in 2006 to be paid out of the profits for the year to 31 December 2005, was approved at the Annual General Meeting of the Company’s shareholders held on 3 August 2006, in Moscow and was resolved to be paid out on 1 September 2006.
The Directors propose a final dividend for 2006 of US$8,85m or US$0,118 per share. The final dividend is subject to the approval of the Shareholders at the Annual General Meeting to be held on 28 September 2007, in Moscow. The final dividend is expected to be paid within thirty days of the Annual General Meeting.
FINANCIAL HIGHLIGHTS
US$ / US$ / US$ / US$ / US$
Trading Results
Turnover / 100.267.324 / 80.572.840 / 78.293.714 / 70.058.014 / 52.832.112
Operating Profit / 13.266.519 / 7.787.582 / 7.867.765 / 7.715.673 / 4.965.246
Profit before income tax / 13.331.601 / 8.633.802 / 8.318.787 / 6.897.806 / 4.544.156
Profit for the year / 11.992.300 / 8.307.704 / 8.098.973 / 6.518.001 / 4.516.917
Profit for the year attributable to
equity holders of the Company / 11.760.000 / 8.162.523 / 7.960.007 / 6.417.652 / 4.465.268
Balance Sheet
Non-Current Assets / 20.236.003 / 15.703.761 / 7.522.578 / 1.279.460 / 1.858.518
Current Assets / 40.269.362 / 41.914.546 / 40.696.667 / 27.938.480 / 14.727.170
Non-Current Liabilities / 3.716.080 / 4.139.407 / 382.177 / 1.803.786 / 37.743
Current Liabilities / 31.392.276 / 33.803.127 / 29.680.167 / 16.564.471 / 9.179.933
Shareholders’ Equity / 24.745.365 / 19.218.505 / 17.823.569 / 10.629.901 / 7.248.579
Shareholder Returns
Earnings per share- basic (cents) / 15,68 / 10,88 / 10,61 / 8,56 / 5,95Dividends per share (cents) / 11,8 / 8,2 / 8,0 / 6,1 / -
Employee Numbers
Number of employees at31 December / 280 / 120 / 136 / 106 / 54
CHAIRMAN’S STATEMENT
The year to 31 December 2006, marked the 10th anniversary of the Company and represents yet another successful year for Vision International People Group.
Sales continued to grow in all of the countries/regions that the Company maintains operations and reached the level of US$100,3m, exhibiting a year-on-year increase of 24,4% compared to sales achieved in 2005 of US80,6m. Similarly, Net Profit attributable to the Company’s Shareholders increased from US$8,2m in 2005 to US11,8m in 2006, representing an increase of 43,6%.
In this context, the Board of Directors of the Company recommends a final dividend of US$8.850.000, or 11,8 cents per share, consistent with the Company’s policy to distribute total dividends of at least 75% of profits attributable to the Shareholders of the Company.
During 2006, the Group commenced operations in Germany and Armenia in order to strengthen its presence in the respective regions, spreading the “Whole Health Option” philosophy of the Group to more people worldwide. The operations in Turkey improved significantly as of July 2006, when the Company secured locally the registration of its biologically active food supplements range and is expected that its performance in 2007 will improve significanly. Romania was off to a low start, albeit the organisation of Distributor events locally is expected to provide a boost in the further development of the Distributor network locally, contributing to an increase in the activity locally during 2007.
2006 was also a year during which the Company established for the first time direct investments in Russia, which still today represents our major market. The improvements in the services offered locally, but most importantly the improvements in the legal and the overall business framework in Russia that have and are being implemented at an ever increasing rate contributing to the modernisation of the Russian economy, have enabled the Company to establish during the 3rd and 4th quarters in 2006 operations on six (6) regions in Russia. The sales of the newly established Trading Companies in Russia during this period reached the level of US$8,3m.
Moreover, the acquisition of the Vision franchise operations in Latvia, Lithuania and Kazakhstan on 1 January 2006, has proved successful and has provided the Company with the opportunity to strengthen its relations with the Distributor network in these countries. Sales to Distributors in these countries during the year reached the level of US$9,6m and exceeded expectations.
Operating Review
The year to 31 December 2006, has been a very difficult one for distributors of Biologically Active Food Supplements (BAFS) due to the fact that, in an attempt to negate the threat of a successful BAFS distribution industry, the pharmaceutical lobby has increased the pressure exerted on local authorities to introduce legislation banning an ever increasing number of natural substances.
The Group welcomes the introduction of legislation in less developed nations to further regulate the production and distribution of BAFS, since it will promote consumer confidence as it has done in more developed nations. It should be noted that the Company’s ranges of biologically active food supplements are produced by Nutripharma Limited, a member of Arkopharma Group of Companies, one of the major producers of pharmaceutical products in Europe based in France, in accordance with the highest quality standards and procedures that meet the European Union standards.
CHAIRMAN’S STATEMENT (continued)
As a result of such legislation, measures are being taken to revise the formulations of certain of the Company’s biologically active food supplements, as well as to enrich the product portfolio of Vision with new products. In this context, the primary constraint with regard to both of these strategic actions relates to the period of time that the re-registration of the revised formulae or/and the registration of the new products in the markets in which Vision operates can take. These processes can take up to six (6) months to complete. The strong relations extant between the Group and Arkopharma Group of Companies enable the Company to act expediently to address these issues, hence revise the formulations of the products affected, as well as develop and bring to the market new products within short time. A new product range “NatureTan” has just being introduced into the market, albeit it is still early to assess the reaction of our Distributor force.
Furthermore, the Company introduced during 2006 its new “Millennium Alliance” skin care product range, effectively replacing its old “Millennium” and “Triovital” cosmetic product ranges. Sales of the new products during 2006 were in line with expectations and reached the level of US$8,6m since they were introduced in August 2006. The Company has plans underway to introduce body care cosmetic products to its skincare product range. Strategically, it is envisaged that the more comprehensive cosmetics product offering will increase the productivity of the Vision distributor network as well as serve to mitigate the business risk of the Company by countering the business reliance on the distribution of biologically active food supplements.